The linked movement of the housing market and stock market in the G7 asset economy

The relationship between housing and stock prices has traditionally been positive and stable. However, prior research suggests this relationship can vary significantly under certain economic conditions. For instance, Yoon (2018) identified a typical business cycle between housing and stock prices in the U.S. and U.K. during oil shocks, the IT bubble collapse, and the 2008 financial crisis. This study examines whether such standard asymmetric behaviour exists across G7 countries using the FIML Markov-switching model developed by Yoon and Nawrot (2022). Our findings indicate that housing and stock prices exhibit a shared business cycle during major economic disruptions, such as oil shocks, the global financial crisis, and the COVID-19 pandemic. Notably, these periods are characterised by heightened volatility in both markets. Conversely, no significant co-movement between housing and stock prices is observed during normal economic periods. These results underscore the importance of considering asymmetric relationships in analysing the interconnected dynamics of housing and stock markets, particularly during financial instability.